Legislature seeks to define substantial completion and limit retainage

Every once in a while the New York Legislature has an idea that catches the attention of the construction industry.  Once such idea is set forth in Assembly Bill 10446 which was sent to the committee on economic development on May 27, 2016.

This proposed amendment to the General Business Law (specifically section 756) has a few interesting components:

1. It would amend section 756 and add a definition of “substantial completion.”  The bill proposes to define substantial completion as “the state in the progress of the project when the work required by the construction contract with the project owner is sufficiently complete in accordance with the construction contract so that the project owner may occupy or utilize the work for its intended use…”  This definition is not so out there or different from the generally understood meaning of the term (and some contracts even specifically define substantial completion in almost this exact manner).  However, codifying the definition of such a critical term in the construction industry is a big step.  It will be interesting to see how the committee considers this term.
2. It would amend section 756-a of the General Business Law to allow subcontractors to submit a final invoice for payment upon reaching substantial completion (using the new definition).  Notably, the current version of 756-a says that a subcontractor can submit a final invoice “upon the contractor’s performance of all the contractor’s obligation under the contract.”  The current phrase is admittedly vague but the proposed definition of substantial completion isn’t exactly black and white.  One this is certain:  the new language would be far more beneficial to subcontractors.  For example, when the punch list remains outstanding the the subcontractor has not “peformed all of his obligations under the contract.”  But when the punch list is outstanding the project has most likely reached substantial completion.  This could be a different of days, weeks or even months in terms of when the subcontractor would be permitted to issue a final invoice.
3. Finally, and not least of all, the bill would amend section 756-c of the General Business Law to put a specific fixed cap on retainage.  Currently, the law only says that retainage is limited to a “reasonable amount.”  You can almost guarantee that the owner, general contractor and subcontractor have a different view of what exactly constitutes a reasonable amount.  But the revised section 756 would limit retainage to no more than 5%.

Right now the bill is in its infancy and may die in a committee somewhere along the way.  As of this writing, there are no floor votes scheduled for the bill.   But it is one that is worth keeping an eye on: especially for subcontractors.